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Platforms, Promotion, and Product Discovery: Evidence from Spotify Playlists

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Platforms, Promotion, and Product Discovery: Evidence from Spotify Playlists NBER WORKING PAPER SERIES PLATFORMS, PROMOTION, AND PRODUCT DISCOVERY: EVIDENCE FROM SPOTIFY PLAYLISTS Luis Aguiar Joel Waldfogel Working Paper 24713 http://www.nber.org/papers/w24713 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 June 2018 The authors thank seminar participants at Minnesota, Tel Aviv, Georgia State, Georgia Tech, and the European Commission’s Joint Research Center in Seville. The views expressed herein are those of the authors and do not necessarily reflect the official opinion of the European Commission, the EC Joint Research Center, or the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w24713.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2018 by Luis Aguiar and Joel Waldfogel. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Platforms, Promotion, and Product Discovery: Evidence from Spotify Playlists Luis Aguiar and Joel Waldfogel NBER Working Paper No. 24713 June 2018 JEL No. L82 ABSTRACT Digitization has vastly increased the amount of new music produced and available directly to consumers. While this has levelled the playing field between already-prominent and new artists, creators may now be dependent on platform decisions about which songs and artist to promote. With Spotify emerging as a major interactive streaming platform, this paper explores the effect of Spotify’s playlists on both the promotion of songs and the discovery of music by new artists, using four approaches. First, we examine songs’ streaming volumes before and after their addition to, and removal from, major global playlists. Second, we compare streaming volumes for songs just on, and just off, algorithmic top 50 playlists. Third, we make use of cross-country differences in inclusion on New Music Friday lists, using song fixed effects to explain differences in streaming. Fourth, we develop an instrumental variables approach to explaining cross-country New Music Friday rank differentials based on home bias. Being added to Today’s Top Hits, a list with 18.5 million followers during the sample period, raises streams by almost 20 million and is worth between $116,000 and $163,000. Inclusion on New Music Friday lists substantially raises the probability of song success, including for new artists. Luis Aguiar Digital Economy Unit European Commission – Joint Research Center Edificio EXPO - Calle Inca Garcilaso 3 41092 Sevilla (Spain) [email protected] Joel Waldfogel Frederick R. Kappel Chair in Applied Economics 3-177 Carlson School of Management University of Minnesota 321 19th Avenue South Minneapolis, MN 55455 and NBER [email protected] 1 Introduction Digitization has stimulated substantial growth in new song production and has, with the development of online music streaming, also broken the traditional promotion and distribu- tion bottlenecks inherent in terrestrial radio and traditional music retailing.1 During 2016, Spotify added over half a million (567,693) songs to its catalog and during 2017 nearly an additional million (934,265).2 As a result, Spotify users have access to 35 million tracks via any Internet-connected device.3 Consumers’ access to large catalogs, and the converse - that creators, not just those from established record labels, have access to large audiences - are on their face a substantial levelling of the playing field, holding out the promise of decon- centrating consumption toward a long tail of products hailing from diverse sources such as independent record labels and foreign producers.4 Access to an increasingly large catalog creates a daunting problem of product discovery, how- ever. Beyond getting consumers access to a large catalog, a major value-creating function of a platform is helping consumers to discover music that they like. Broadly speaking, plat- forms do this in two ways. First, they create personalized music suggestions, via individual playlists such as Spotify’s Discover Weekly, or Pandora’s song- or artist-seeded individual stations. These systems have been the subject of much research on recommender systems and music taxonomy (see, for example, Adomavicius and Tuzhilin, 2005). Second, platforms promote discovery via general, i.e. one-to-many, playlists. Some of these lists - like Spotify’s Today’s Top Hits - are curated using human discretion and are often used to promote songs and artists that are already widely known. Other curated lists - like Spotify’s New Music Friday - are more specifically dedicated to the discovery of new songs and artists. Algorith- mic playlists - like the Global Top 50 or the U.S. Viral Top 50 - are, on the other hand, based algorithmically on streaming charts rather than human curators. The interactive music streaming market has a number of major participants, including Spo- tify as well as services from Apple Music and Google.5 Spotify is growing quickly, and in 2017 Spotify was reported to have a 37 percent share of the subscription streaming market.6 1See, for example, Waldfogel, 2017. 2See http://everynoise.com/sorting_hat_closet/ for weekly lists of songs added to Spotify. 3See United States Securities and Exchange Commission (2018). 4See, for example, Zentner et al. (2013) showing that video consumption deconcentrates when consumers have access to an online selection. 5See http://www.businessinsider.com/google-reshuffles-its-music-products-2017-2. 6See https://www.statista.com/statistics/653926/music-streaming-service-subscriber-sha 1 With Spotify emerging as the leading interactive streaming service, it is interesting to explore whether Spotify influences consumption choices through its general playlists, which function in two ways. First, playlists are potentially informative lists of songs that can simply make users aware of particular songs. Second, playlists are utilities for listening to music: a user who subscribes to a playlist can select it, then automatically play its songs in either rank or random order. Users opt into playlists by subscribing to them at no cost, and the most popular playlists have nearly 20 million subscribers. These developments raise questions about how and whether playlists affect consumption choices and promote the discovery of new songs and artists. Growing concentration in the streaming market puts streaming platforms among the handful of online platforms that have come to dominate, or nearly dominate, their respective markets in search advertising (Google), social networking (Facebook), online retailing (Amazon), and others. Some observers warn of a new era of “Internet monopoly” and call for heightened antitrust enforcement.7 The usual concern about market dominance is that firms with market power will harm consumers by charging high prices. While the major platforms do not charge consumers high prices - and in many cases do not charge consumers at all - dominant platforms warrant attention even if they do not deliver high prices to consumers.8 Platforms are sometimes alleged to affect the fortunes of their suppliers, and in the music context, platforms can play important roles in determining song and artist success, including the determination of which songs and artists are discovered in the first place.9 While Spotify is not a music producer, the major record labels have substantial ownership stakes in Spotify. Sony BMG owns 5.8 percent, Universal owns 4.8 percent, Warner Music owns 3.8 percent, and EMI has 1.9 percent. Merlin, which represents many independent record labels, owns 1 percent.10 It is therefore of interest to understand the extent of a prominent platform’s ability to influence which songs and artists succeed. Against this backdrop, this paper explores whether Spotify has the ability to influence users’ re/. 7For example the Open Markets Institute argues that “Online intermediaries have emerged as the railroad monopolies of the 21st century, controlling access to market and increasingly determining who wins and who loses in today’s economy.” See https://openmarketsinstitute.org/issues/tech-platforms/. George Soros has argued that the “fact that they are near-monopoly distributors makes them public utilities and should subject them to more stringent regulations, aimed at preserving competition, innovation, and fair and open universal access.” See Porzecanski (2018). 8See Ip (2018). 9See Edelman (2011) and Zhu and Liu (2016). 10See Lindvall (2009) and Arrington (2009). 2 listening decisions. First, we ask whether playlist inclusion affects the number of streams that songs receive. Second, we ask the related but distinct question of whether playlist inclusion decisions affect consumers’ discovery of new songs and artists. These questions recall the traditional question of whether promotion on radio stimulates music sales, one that is empirically challenging to address because playlist and airplay decisions are endogenous: curators choose songs they expect will be popular. We employ four empirical approaches to measure the impact of playlist inclusion on song performance. (1) We use the discontinuous jumps in the number of songs’ playlists followers when widely followed lists add a song. (2) For algorithmic
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